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Rosetta Stone Inc (RST) Q4 2019 Results Transcript Transcript

 


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Rosetta Stone Inc(NYSE: RST)
Call for fourth quarter 2019 results
March 11, 2020, 5:00 p.m. AND

Content:

  • Prepared remarks
  • Questions and answers
  • Call participants

Prepared remarks:

Operator

Greetings. Welcome to the Rosetta Stone Incorporated fourth quarter 2019 earnings conference call. (Instructions for the operator) Please note that this conference is being recorded.

I now give the floor to your host, Jason Terry, ADDO Investor Relations. Thanks, you can start.

Jason TerryVice President

Thank you. Good morning all. Welcome to Rosetta Stone's fourth quarter and 2019 results conference call. Today, John Hass, President and Chief Executive Officer, and Nick Gaehde and Matt Hulett, Rosetta Stone co-chairs, will speak. In addition, Tom Pierno, the company's chief financial officer, will be available during the Q&A portion of the call today.

We have published in the Investor Relations section of our website at www.rosettastone.com both the publication of the results and a presentation of slides, which accompanies the call today Today. We have also published additional information and analysis on our website.

I want to remind everyone that, as always, today's presentation will have forward-looking elements based on our best view of the world and our activities as we see them. let's see today. These statements are subject to a number of risks and uncertainties which could cause actual results to differ materially. A description of these risks and uncertainties and other factors that could affect our financial results is contained in our latest annual report on Form 10-K and our quarterly reports on Form 10-Q. We expressly disclaim any obligation to update or revise any forward-looking statement, except as required by law.

Today's presentation and discussion also contains references to non-GAAP financial measures. The complete definition, comparison of GAAP and a reconciliation of these measures are available in the presentation and the press release mentioned above.

I now give the floor to John.

John HassManaging Director and President

Hello and thank you for joining the call. We have a lot to discuss, so please go to slide 3, and I will start by giving you an overview of our consolidated fourth quarter and year-end results. 2019 was a year of significant progress across Rosetta Stone, confirming that the efforts to restructure our business are behind us. 2019 was the first year since before 2014 in which each of our segments increased, producing a growth in consolidated bookings of 9%.

Our literacy segment led the way, driven in particular by increased contributions from PowerUp, but for the first time in many years, both language segments also contributed to the growth. I would like to highlight in particular the very good performance in the fourth quarter of our Consumer Language, which saw bookings increase by 14% compared to the fourth quarter of 2018.

On a consolidated basis, revenues for the fourth quarter and for the year increased by 5% compared to the same periods in 2018. This growth contributed to the improvement in adjusted EBITDA and net income for the year. 39; whole year. Net profit for the quarter was a loss of $ 6.5 million, compared to a loss of $ 4.4 million for the same period in 2018. And for the entire year, net profit was a loss of $ 13 million compared to a loss of $ 21.5 million in 2018.

Adjusted EBITDA for the quarter was negative $ 0.9 million, compared to $ 0.7 million for the same period in 2018 and for the full year, $ 6.9 million, compared to 0 , $ 2 million in 2018. We ended the year with a cash balance of $ 43 million and no debt. 2019 has been a very good and important year for us.

Please go to slide 4. Now with an excellent set of SaaS solutions delivering great results for learners, meaningful growth opportunities for both our kindergarten to grade 12 businesses and a solid business and strong balance sheet , we are delighted to go ahead and start realizing the benefits of the investments we have made in the business.

Benefits that, in products like PowerUp and our soon-to-be-released English learning solution K6, have barely begun to materialize or have yet to be released. It is this latent opportunity, as well as the opportunity that we see in other assets, like the Rosetta Stone brand, that we are passionate about for the future.

Before we go any further, I would like you to know that after seeking the advice of our shareholders, we have decided to recommend in this year's proxy a change to our charter which will allow us to Eliminate our current classified advisory structure. We believe that the stability offered by a classified board has served us well as a relatively new public company, but as we have matured and built a strong, shareholder-focused board, we believe this is not the case. 39; is no longer necessary.

I should also inform you that we have decided to postpone our investor day, scheduled for April 15. There are many things we want to share with you and we want to do it in person. Many people have told us that this may not be possible at the moment, so we are considering moving Investor Day to this summer. I also need the team to currently focus on everything that is going on in the business and with our customers. We will reply with a date as soon as possible

As we can reasonably do.

Now let's take a closer look at the performance of each of the companies, starting with Lexia. And for that, I will give the microphone to Nick.

Nick GaehdePresident-Lexia Learning

Thanks, John. Please go to slide 5. In our literacy sector, revenues for the quarter were $ 17.1 million, an increase of 18% from the same period in 2018. For Overall for the year, revenues increased to $ 62.6 million or 19% more than in 2018. Bookings were $ 10.8 million in the fourth quarter, an increase of 11 % over the same period in 2018, while full-year bookings were $ 68.4 million, an increase of 17% over 2018. While new customer bookings increased in absolute terms and in percentage in 2019, we did not reach the expectations that we had initially set ourselves. In a moment, I will explain to you why and what we are doing to better seize the opportunity we have.

Please go to slide 6. Annual recurring revenue or ARR has increased by 17% in line with the growth in bookings, ARR is driven by our ability to maintain and increase the dollars we receive from existing customers and by new sales. As we discussed earlier, the retention rates that for us are based and do not reflect the size of the account tend to decrease in 2019, mainly due to the turnover in the last two years of small accounts, including the Many of the accounts that have come are breaking away from the remaining Grandpa prices of Lexia's transition from perpetual sales to subscription sales.

We want to better manage these small accounts more effectively, but now that we understand the underlying reason better, this is not a trend that concerns us. In 2019, dollar renewals continued to be strong and consistent with previous years. That said, we expected more of our renewal during the year as we introduced price increases that targeted entire school licenses and some annual service limitation plans.

Although in many cases the price increases have been accepted by our customers, more often than expected, schools or districts manage their expenses by opting for cheaper service packages which maintain their previous price. This had the advantage of improving the margin on these reservations for us, as we provided less in-person services for the same amount, but did not increase reservations as much as expected as the services had been maintained and that the price increase had been passed on.

Please go to slide 7 and I'll talk about our growing portfolio of solutions that will help drive growth. The first is the clear success of PowerUp. Remember, not long ago, we only had one literacy program product. In 2018, we talked to you about PowerUp about how we expected it, as well as Core5 to help us meet the critical literacy needs from kindergarten to high school that have fundamentally expanded our dialogue with districts and deepen our impact.

And you can see the effect of the introduction of PowerUp on the slide. Since the launch of PowerUp in January 2018, it has resulted in a rapid expansion in the number of customers using more than one product. PowerUp also boosts standalone sales and in many cases this is the first product we introduce in a school system that uses one of our competing solutions in their elementary school buildings. It is an effective corner that will allow us to descend into elementary school buildings over time, especially as we demonstrate its effectiveness.

At the end of last month, PowerUp was used in more than 6,000 school buildings both independently and in combination with Core5. This is a 70% increase from February 2018 and indicates the largely unmet need that we have seen in the market to help the large population of struggling readers and their teachers in college and high school. And we are now starting to see compelling evidence that our ability to develop highly effective K-12 products that produce positive change for students and their schools is not limited to Core5.

Please go to slide 8. In January, our first study on the effectiveness of PowerUp received an ESSA score of strong, which is the highest score according to the guidelines of ESSA, the Every Student Law. Succeeds Act of the federal government, and it is very difficult to achieve. In fact, given the effects seen in the study, PowerUp is now listed on the Evidence for ESSA website, the organization that provides clear and authoritative information about programs that meet the standard of ESSA evidence as the most effective secondary literacy intervention among the programs listed. . This is a special distinction deserved by our product barely two years after its launch. We still believe that PowerUp would be able to help two-thirds of older students who find it hard to read what was designed for, but to have independent validation, because the intervention of & # 39; The most effective secondary literacy is something we are very proud of.

With Core5 and PowerUp, we now have two successful validated products that are highly complementary. This puts us in a much stronger position as a company than we used to be as a product company, even a product as good as Core5, and we now have a great opportunity to Make three.

Please go to slide 9. As the success of Core5 and PowerUp demonstrate, we are very good at identifying large areas of insufficient need in kindergarten and secondary and creating products that meet these critical needs by providing adaptive solutions and that benefit students while providing their teachers with the data and

The information they need, all in a way that speeds up learning.

Helping emerging bilingual learners to acquire English language skills is the next area we focus on. As a reminder, this is the fastest growing kindergarten to grade 12 student population in the United States, currently about 10% of students, but is expected to reach 25%. 39 by 2025. We believe that there is room for considerable improvement in the teaching of these English as a second language learner in the United States, and potentially around the world.

Our solution for emerging K-6 bilinguals will be called Rosetta Stone English, leveraging the power of our brand to increase awareness and confidence in a language development solution. Rosetta Stone English will open up new perspectives in a part of the market that is still largely printed and unable to adequately meet the needs of these learners.

Rosetta Stone English entered its beta period in early February. It is a large program covering more than 30 schools in eight key states, including California, Florida, Texas and North Carolina, and reaching approximately 2,000 students. So far, the feedback has been very promising. With this expanding product portfolio, we also strive to ensure that the sales force is structured and supported to achieve our growth objectives.

Please go to slide 10. New literacy bookings, although they have increased more than in the previous three years, in absolute terms and as a percentage, have not responded to our expectations. Although we operate in a competitive market, we do not think it is a problem of opportunity.

As mentioned during our third quarter call, we recorded new weaker-than-expected sales in two regions, Texas and the big ones, or what we call national accounts. These opportunities continue to be significant and exciting, and we believe we have the right positioning to drive market growth as it grows as in the case of Texas and as our relationships mature and grow. develop as in the case of national accounts. In fact, the high school part of adopting literacy in Texas, where PowerUp is a good choice, begins this year.

But as this slide shows, we expect that the majority of our opportunities will continue to come from focusing on the districts where we are already and where we can demonstrate positive results. The opportunity shown here is huge, but we need to adjust the way we are going to grab it.

Please go to slide 11. Historically, largely to focus on upselling opportunities with current customers, regional sales managers managed a team that included both account managers, these sales reps based on fieldwork who work face to face in districts, and generally focus on large accounts and account managers, who are more like an internal sales team and generally focus on small accounts.

As we grow, the volume of low-opportunity customers has grown under our sales teams, reducing the time available to regional sales managers and their account managers to prospect for new business and generate greater expansion. In fact, we will manage approximately 4,600 renewals in our direct operations this year. To solve this problem and further realize our growth potential, we have accelerated the evolution of our sales and marketing organization Literacy in order to significantly increase its capacity for new business and high value expansions. added in renewals, while more efficiently managing our large volume of small accounts. with more limited expansion potential.

Earlier this year, we moved the account managers of our regional sales managers and placed this team under two new regional internal sales managers. This group of account managers, which we are also developing, is now entirely focused on the large number of customers with the least opportunity. Above all, these reassignments of smaller account responsibilities to an internal sales team allow our field-based regional sales managers to work more closely with their account managers, and for all to focus more productively on new ones. greater opportunities and strategic renewals. We are also increasing the size of our sales teams in the field.

Finally, to improve the efficiency of all of our sales professionals, we more than double our team of account specialists. This team takes care of the transactional elements of the process so that the sales team can focus on making contact with new customers and strengthening existing customer relationships. These steps, taken together, have greatly increased our ability to generate the commitment and focus needed to manage renewals, while developing new business faster. This is a significant investment that will reduce profits in 2020, but with that in place, it should allow us to grow faster and more efficiently.

Now let's go to our linguistic activity, and I will give the floor to Matt.

Matthew HulettPresident, Language

Thanks, Nick. Go to slide 12. We had a solid fourth quarter in our two sectors, Consumer and Enterprise and Education Language, concluding the first year of growth since before 2014. In the fourth quarter, excluding personalized content, corporate bookings amounted to $ 10.7 million compared to $ 9.3 million. over the same period in 2018. The growth in Enterprise was more than offset by the year-over-year decline in personalized content over the period and the decline in K- language reservations 12, resulting in total E&E reservations of $ 14.9 million, down $ 1 million. from the same quarter of the previous year. For the year, however, total E&E bookings increased by $ 2.8 million compared to the previous year, due to the large third-party personalized content transaction and improving performance in our industry.

During the quarter, the company team entered into another seven-digit contract. This global agreement for a company based in Europe was the third business contract of a million dollars or more signed in the last two years. We continue to see additional expansion opportunities in our large pool of Global-1000 accounts, which currently have a low value relationship with us.

Please go to slide 13. Consumers had a very good fourth quarter with bookings growth of $ 2.5 million or 14% from the fourth quarter of 2018, driven by sales of the Rosetta app Stone. Bookings have also increased due to the sale of lifetime subscriptions on the web channel, but as these sales are recognized as revenue over 24 months, they have had no significant impact on revenues in the fourth quarter of 2019.

Revenues for the quarter amounted to $ 15.8 million, an increase of 2% over the same period in 2018. For the full year, revenues from Consumer Language amounted to 63.3 million dollars compared to $ 60.5 million in 2018, while bookings before SourceNext during the year increased by 5% to $ 66.4 million. As John said before, this is the first year that bookings and consumer revenues have increased since 2014. The total contribution of language activities after the shared costs of R&D and IT was $ 3.3 million in the fourth quarter and $ 23.1 million for the entire year.

Let's move on to slide 14. The solid fourth quarter performance in the consumer sector was driven, in part, by strong sales of longer-term subscriptions, in particular, our lifetime product. We find that the product for life is attractive to a distinct customer segment that wants to commit to learning a new language, but that it is repelled by limited subscription offers that are at odds with investing in the time it knows necessary. We recognize that lifetime sales eliminate the possibility of future renewals from these customers, and have priced the product accordingly to capture an LTV that is as high, or higher, than we would otherwise expect with the time from future shorter term subscription product renewals.

Sales of lifetime subscriptions increased the average initial selling price from $ 103 in the third quarter of 2019 and in the fourth quarter of 2018 to $ 120 in the fourth quarter of 2019. And although the Net LTV has been relatively stable from year to year, we recognized more of this LTV from the start, maximizing its benefit to us.

Let's go to slide 15. We see a logical bifurcation of our clientele in those who are looking to try language learning and who are most likely to buy an initial three-month subscription, compared to committed learners who are more likely to buy a 24 month subscription or lifetime subscription. Therefore, we adjust our offerings to create more value for each type of apprentice in order to better meet these objectives.

In February, for example, we added a major upgrade to our long-term subscription offerings. For the first time, for all subscriptions, 12 months or more, learners have access to the 25 languages ​​in our catalog in a single purchase. We call it Rosetta Stone Unlimited. From now on, a learner who buys a lifetime subscription will be able to learn any language now or in the future. These lifetime subscriptions have an average selling price per unit of around $ 189, compared to $ 36 for a three-month subscription, reflecting the huge value we offer.

And the value we provide to learners will only increase in 2020. We have a number of exciting new features that will be rolled out early this year and which we will talk about in future calls and share with others. Investor Day occasion. It is great to accelerate the pace of innovation and language now that our work to consolidate and deflate the platform is behind us.

Please go to slide 16. As we begin to see vitality return to our consumer language business, we decided earlier this year to expand our variable marketing expenses to include more funnels on the offline market. I have spoken in the past about the enormous power of the Rosetta Stone brand. But frankly, we haven't done much to actively leverage it. In the past five years, we have spent almost no money in offline brand marketing, which may have a good return, but a longer return on investment. Instead, almost all of our media spending has been focused on faster return on investment, successful digital marketing where $ 1 invested has produced bookings of around $ 1.80 on average relatively quickly.

We are now delighted to resume our investments in profitable long-term growth in our language businesses. You will remember, we did a brand marketing test in three cities in 2019. We are using the lessons learned from this test to naturally expand and focus our brand spending in 2020. We don't have it Intention to be, nor given the strength of our brand, should we be a prolific offline advertiser. But again we want to build a presence, which will broaden our customer reach and refresh what Rosetta Stone means in the mind of a language learner.

Because advertising at the top of the funnel builds and pays off over time, we don't expect a positive return on the media for this part of our marketing spend in 2020. Therefore, it will reduce the consumer contribution compared to what it would have been if we hadn't chosen to invest in our future growth. We take a measured approach in this regard as an investment and are confident that the return will increase and be profitable over time based on our previous experience and recent tests that we have performed.

With that, please go to slide 17 and John will review our financial outlook and share some closing comments.

John HassManaging Director and President

Thanks, Matt. Given all that has happened, including the past few days, it is essential to contextualize our outlook for this year with some thoughts on COVID-19 and its potential influence on our activities in 2020 and over time .

Regarding directly the impact of the virus, our two priorities are the health and safety of our employees, and continue to support our customers and our learners during this uncertain and difficult period. For our employees, we have limited travel and are taking precautions to promote a safe work environment, including, if necessary, the temporary closure of offices, as we did in Seattle, which, as you know , is at zero point here in the United States.

For customers, all our solutions can be used remotely by learners, including in K-12 and in business. We are working hard to make sure we support our schools and businesses, if they are disrupted by closings, to ensure continuity of learning. We are confident that we will be an excellent partner during what will be a difficult period for many.

As we consider the potential financial impact of this on our business, it is important to have a balanced long-term view, especially since we do not yet know much. In the medium term, I firmly believe that the disruption caused by the virus will raise awareness of the benefits of blended learning solutions like ours. Consider, for example, the benefits of an online coach for a client business compared to sending a cadre to a language center or having a tutor in your office, or the ability of a young student to continue learning to read at home using our software purchased by their neighborhood in the event of school closure. These are real and tangible benefits for our solutions.

Having said that, we have to be careful and balanced. In the short term, uncertainty, slowing economic growth or customer distraction could affect parts of our business by prolonging customer decision-making or even cutting learning budgets . Dans notre entreprise K-12, nous sommes convaincus de notre capacité à conserver, voire à étendre, nos relations avec les clients existants compte tenu de la capacité d'apprentissage à distance que nous offrons, mais il est possible que nous trouvions un peu plus difficile de stimuler une nouvelle croissance pendant une période si les clients potentiels se concentrent sur la gestion des implications immédiates du virus.

Pour être clair, nous n'avons pas encore vu de preuve significative de cela, mais nous serions négligents si nous ne le planifiions pas. Ceci, et notre volonté de réaliser des objectifs au cours de cette année importante, nous ont amenés à réexaminer les objectifs préliminaires pour 2020 que nous avons partagés en novembre, et à inclure une gamme plus conservatrice.

En 2020, nous nous dirigeons maintenant vers une croissance consolidée des revenus de 3% à 7%, soit environ 189 millions de dollars à 195 millions de dollars, grâce à une combinaison de 12% à 14% de croissance des revenus en alphabétisation sur une croissance attendue des réservations de 20% à 25%, Croissance des revenus de 4% à 7% dans Consumer, sur une croissance des réservations relativement stable et une baisse en pourcentage à un chiffre des revenus pour E&E sur une baisse attendue plus importante des réservations.

Nos perspectives de forte croissance des réservations dans le domaine de l'alphabétisation sont motivées par les taux de renouvellement élevés attendus des clients existants, une troisième année de PowerUp, et l'investissement que nous faisons pour segmenter et concentrer de manière plus productive l'organisation des ventes et du marketing de Lexia dont Nick a parlé. Cette perspective est plus modérée qu'auparavant, en partie parce que même si nous prévoyons qu'il peut y avoir de bonnes opportunités de croissance avec les clients existants dans cet environnement, nous ne savons pas encore quel sera l'impact, le cas échéant, des perturbations et des distractions liées au virus. être sur de nouvelles affaires.

Les conseils sur le segment de l'alphabétisation comprennent un peu moins de 2 millions de dollars de réservations de Rosetta Stone English, qui viendraient tous au deuxième semestre de l'année après sa sortie commerciale. Une bonne partie de cela en 2020 devrait provenir des renouvellements des clients existants de la langue Rosetta Stone du segment E&E. Les prévisions de revenus du secteur de l'alphabétisation pour 2020 sont également affectées par des réservations inférieures aux prévisions initiales en 2019. Et deuxièmement, parce que nous prévoyons qu'environ 80% du total des réservations d'alphabétisation et la quasi-totalité de la croissance des réservations d'alphabétisation se produiront au deuxième semestre de l'année, l'impact de la croissance des réservations de Literacy cette année sur les revenus consolidés en 2020 est diminuée.

Les revenus des consommateurs en 2020 devraient maintenant être légèrement supérieurs à ce que nous pensions précédemment en raison de la bonne performance du quatrième trimestre 2019. Nous n'avons pas modifié notre taux de croissance des réservations des consommateurs pour l'année, car nous voulons voir comment de nouveaux produits, comme nos langues illimitées l'offre dont Matt a parlé, qui démarre bien en 2020, fonctionne sur une plus longue période. Nous continuons de nous attendre à une baisse des réservations E&E en raison de la baisse des réservations attendues de projets de contenu personnalisé, rappelez-vous que nous avions un contrat de contenu personnalisé de plus de 7 millions de dollars en 2019 et des baisses de notre activité linguistique K-12, en partie dans le cadre de son renouvellement l'entreprise passe au segment de l'alphabétisation avec l'introduction de Rosetta Stone English.

Pour ce qui est de la rentabilité, nous prévoyons maintenant un BAIIA ajusté d'environ 3 millions de dollars à 5 millions de dollars et les flux de trésorerie d'exploitation devraient se situer entre 14 et 16 millions de dollars. Fait important, 2 millions de dollars de la réduction du BAIIA et des flux de trésorerie liés à l'exploitation de nos prévisions préliminaires en décembre sont le résultat du transfert de 2 millions de dollars des coûts de développement de produits, qui devaient auparavant être capitalisés, vers la R&D où ils seront passés en charges. Nous prévoyons maintenant que les dépenses en immobilisations seront d'environ 17 millions de dollars, en baisse par rapport aux prévisions antérieures de 18 à 20 millions de dollars et que nous serons à peu près à l'équilibre des flux de trésorerie pour l'exercice.

Au total, les flux de trésorerie attendus sont inférieurs de quelques millions à ceux que nous avions anticipés, mais nous voyons une opportunité d'investir derrière la solide performance que nous constatons dans Consumer, et nous voulons être un peu plus conservateurs dans nos perspectives de réservations dans l'environnement actuel . Nous avons compensé une partie de cela en réduisant les dépenses ailleurs.

Étant donné que nous reflétons l'incertitude actuelle dans nos réservations et nos perspectives de revenus, nous garderons également à l'esprit nos dépenses au cours de l'année. Au fur et à mesure que nous en apprendrons davantage sur l'environnement dans lequel nous évoluons, nous nous ajusterons au besoin dans le but de continuer à investir dans l'avenir tout en restant à peu près à l'équilibre des flux de trésorerie cette année.

Alors que nous regardons au-delà de 2020 et de la perturbation actuelle, nous ne voyons aucun changement significatif dans les tendances des réservations dans notre entreprise. Poursuite de la forte croissance de Lexia tirée par la fondation de Core5, avec des contributions croissantes de PowerUp et l'introduction de Rosetta Stone English, une croissance moyenne à élevée à un chiffre en Consumer Language et des réservations plates en E&E Language car la croissance dans Enterprise est compensée par une rétrécissement des affaires de langue K-12.

Veuillez passer à la diapositive 18 et je parlerai du premier trimestre. Compte tenu de sa proximité avec la fin du trimestre, nous aimerions partager nos perspectives pour le premier trimestre. Je rappelle à tous que notre premier trimestre est très petit, avec environ 15% des réservations attendues pour l'année. C'est particulièrement le cas en alphabétisation où les réservations devraient être relativement stables par rapport au premier trimestre de 2019 et représenter environ 5% du total des réservations en alphabétisation pour 2020.

Nous continuons de constater de solides performances au premier trimestre dans le domaine de la langue des consommateurs, et nous pensons que cela nous fournit une excellente toile de fond alors que nous commençons à familiariser les gens avec la nouvelle pierre Rosetta grâce à la publicité incrémentielle de la marque. Sur une base consolidée, nous prévoyons un chiffre d'affaires total de près de 46 millions de dollars au premier trimestre, en légère hausse par rapport à l'an dernier, une perte nette PCGR d'environ 7 millions de dollars et un EBITDA ajusté un peu supérieur au seuil de rentabilité, soit une baisse d'environ 3 millions de dollars par rapport à l'année précédente.

En raison de notre utilisation typique de trésorerie au premier semestre, nous aurons à nouveau des emprunts saisonniers. Comme en 2019, nous prévoyons disposer d'une trésorerie nette positive à tout moment et avons l'intention de terminer l'année sans endettement. Comme le suggèrent nos prévisions pour l'année entière, nous prévoyons une accélération de la croissance des revenus et de la rentabilité opérationnelle à mesure que nous progressons jusqu'en 2020, conformément à la croissance saisonnière des réservations dans notre entreprise.

Pour conclure, je suis fier des progrès que l'équipe a réalisés au cours des cinq dernières années, mais c'est une année importante avec des priorités qui incluent de rafraîchir la compréhension de ce que Rosetta Stone peut être pour quelqu'un qui cherche à apprendre une langue, en se concentrant sur une plus grande Équipe de vente K-12 sur le renouvellement et l'expansion des clients existants et la croissance de nouvelles affaires et, plus tard cet été, le lancement réussi de Rosetta Stone English. Ce sont des moments difficiles pour beaucoup et nos pensées accompagnent toutes les personnes concernées. Mais je sais, notre équipe sera là pour soutenir les apprenants et développer des relations clients plus solides basées sur la confiance, l'engagement et la livraison de grands résultats.

En même temps, il y a de quoi être excité. The growth and newly validated efficacy of PowerUp, the coming introduction of Rosetta Stone English, the first product that will bring together all that we do best across the Company, the chance to reinvigorate the great Rosetta Stone brand and begin to invest behind Consumer again, and knowing that we will support our customers through the current coronavirus event wherever they want or need to learn. In the interim, we will communicate with you regularly. We will keep you updated on the progress against our priorities, and we look forward to seeing many of you in person at Investor Day.

We would now be happy to take your questions.

Questions and Answers:

Operator

At this time, we will be conducting a question-and-answer session. (Operator Instructions)

Our first question is from Alex Paris, Barrington Research. Please proceed with your question.

Alex ParisBarrington Research — Analyst

Good afternoon, everyone.

John HassChief Executive Officer and Chairman

Hi. Hey, Chris (Phonetic).

Alex ParisBarrington Research — Analyst

Hi. I'm sure, you're asked this question a lot, as you added some great color in your commentary, on what you're doing with regard to the business in reaction to COVID-19. As we look at COVID-19, has there have been any change or how should we think about the priorities for capital allocation or preservation through this fiscal year? And following up on COVID-19, has — have you changed at all your sales team expansion and/or direction in the midst of this uncertain environments?

John HassChief Executive Officer and Chairman

Yeah, no, these are very good questions, Chris. Thank you for asking them. We have a lot of variable expense in — really across the Company, primarily in sales and marketing. We have that in the Consumer business, and Matt can speak to that. I'll tell you, right now, we are seeing a very strong environment in the Consumer business. And so the plan is to continue to lean into that and we can watch that really on a daily basis as opposed to some of our other businesses, which have a longer pipeline, where we really have to be thinking out quarters. But the Consumer business, we're able to track very closely and we're feeling very good about the performance of that business even now, and I'll let Nick and Matt add to this.

As it regards the K-12 investment, we are absolutely committed to that. We are certainly mindful of the opportunity that we see in the business, both this year and longer term. We absolutely believe that, well, this is a terrible humanitarian crisis, and we will do everything we can to support our team. And our customers that when we come through it, the opportunity for us will be as great or greater than it has ever been, and we want to make sure that we are there with the right products and the right customers and the right customer relationships to continue to drive that. That said, we will, of course, be mindful of expenses. You've heard me commit to trying to keep this Company at the very least cash flow breakeven, during the course of the year. I think that's important. We certainly have more than sufficient liquidity to back us up. Based on everything that we see, we renewed our credit line and actually expanded it. That was done on prior to the most recent events. And so, we feel very good about it, but we will be thoughtful.

Alex ParisBarrington Research — Analyst

That's great. Very helpful. And shifting to opportunity. Perhaps an update on how the launch of the K-5 solution is going so far in the quarter? Any idea at this point? It's early in the year as to how much of a contributor it could be to incremental growth?

John HassChief Executive Officer and Chairman

Yeah, Nick, would you like to talk about Rosetta Stone English for a moment and the beta?

Nick GaehdePresident-Lexia Learning

Sure, I'd be glad to. Hi, Chris, so as John mentioned, and I mentioned in the presentation we launched Rosetta Stone English about three weeks ago now, and are seeing strong use in about 30 schools with about 2,000 students in key states across the country, and are really happy with the response we are seeing and the engagement both from students, and from educators. Really highlights the fact that there just is not a good product on the digital side to support those learners. But we are being fairly conservative in terms of what we are expecting from a contribution standpoint this year. We have approximately $2 million in the back half of the year that is tied to Rosetta Stone English, and obviously, introducing it this summer, really just capturing half of the — half of the year and the beginning of the next school year. So the real growth for Rosetta Stone English is going to be in 2021.

John HassChief Executive Officer and Chairman

And, Chris, just to make sure you understand when Nick says launch, that was the beta launch. And as Nick said, the actual commercial launch is not too later, in the summer.

Alex ParisBarrington Research — Analyst

Got it, got it. All very helpful and I look forward to that. And any update on the state of Texas, I know we talked about it on the last call that should be a more contribute — more of a contributor this fiscal year, I assume. And I'm assuming your progress is still moving well in states like Utah, New York City and Arizona.

Nick GaehdePresident-Lexia Learning

Yeah, so, first of all, I'll talk about Texas. As we talked about on our third quarter call, Texas was slower to materialize in the first year than we had expected. Last year was really the 2019 adoption year, which was focused on the elementary school market. 2020 is the secondary school adoption, and we're seeing some really strong acceptance and reaction to our PowerUp product in the secondary school market, and are really pleased with the pipeline that's developing there.

In terms of other target states, obviously, Utah is an important state and customer for us. We're continuing to work closely, both with the State Department of Education as well as individual districts to implementing our programs. And are now in over 60% of the elementary school buildings in that state, and are seeing great engagement and great progress for those learners. And continue to look at specific states, where there is either legislative activity or specific funding in place, where we can target our national strategy team.

Alex ParisBarrington Research — Analyst

Génial. Thank you for the color. I appreciate it. And I'll hop back in queue.

Operator

Our next question is from Steven Frankel, Dougherty. Please proceed with your question.

Steven FrankelDougherty — Analyst

Good afternoon. Nick, let's go back to the bookings situation again. And Q3, there clearly were some issues and Texas being one big one, but you guys seem fairly confident that you had some business slip into Q4 that you would be able to capture and you could do something north of $70 million in bookings for the full year and you came in, call it $3 million short of that. You did mention some pricing issue on realized prices that would seem to be not the explanation for all of the shortfall. So I'm wondering what else happened in Q4, and do you have the right bodies in place to exit in 2020?

Nick GaehdePresident-Lexia Learning

Ouais. Thanks, Steve. Appreciate the question. So as I said, from the previous question, obviously in 2019, we had more expectations for our performance around new business and especially in Texas in our national strategy initiative than we actually delivered. That being said, and we saw things that slipped into the fourth quarter, where we felt confident that they are going to come in, and actually slip into 2020. We were hopeful, given what we saw in the pipeline that they would close by the end of the year. But I think what we're seeing as schools now shifting their focus to 2020, the good news is, a lot of the districts that we had in the pipeline in the fourth quarter of 2019 are in the pipeline for 2020. And not only in the pipeline, but because of the secondary adoption, growing in size and momentum, that still will be second and third quarter sales, but we're really pleased with the strength that we see there.

Steven FrankelDougherty — Analyst

Okay. And then, in terms of the bodies you have, the talent you have and the shift of the bodies over from E&E, given all the dynamics in this market, how confident are you that you have the team that can hit the ground running in 2020 and have this not be a rewind of what we saw last year?

John HassChief Executive Officer and Chairman

Ouais. So, the things that we've changed in terms of our sales channel structure, I think, our direct result of some of the challenges we saw in 2019, they were changes that we knew we need to make over time. And in this case, we have accelerated those channel shifts. It's really about focusing those larger opportunities and expansion opportunities into the hands of our account executives and our regional sales managers and reducing the span of control for those regional sales manager, so they have time to work those larger opportunities and work with those account executives. At the same time, we've now put in place two new regional inside sales managers with an inside sales team underneath it that can handle that high-volume, low-value customer segment.

Quite honestly, one of the things in the fourth quarter of 2019 that we saw was just the volume of business that continued just wasn't able to be managed by the team we have in place, given the fact that they had too many opportunities. So, the structure we have now and the additional capacity and talent that's already in place and continuing to build, I feel, is the right structure not just for 2020 but to drive us forward into the future

Steven FrankelDougherty — Analyst

Okay. And then, Matt, is this shift to the higher dollar lifetime or longer-term subscriptions, is that in part a reflection of the seasonality in the business and that's a great gift to keep — to give the people or is this you conscious strategy now to focus on selling that set of customers, which differentiates you from your competitors?

Matthew HulettPresident, Language

That's a great question. We do lean into the fact that we're a premium brand and that we have added more utility in Q1 to allow consumers that basically have the Netflix of language learning, so adding 25 languages to all long-term subs. And the fourth quarter is more of a mixed shift as we mentioned on the lifetime SKU. This was actually better than our expectations. Obviously you saw the quarter results. We've been pretty pragmatic in terms of how we're guiding into that for 2020 because it's too early to tell. But as John implied on the call, we're having a good Q1 as well. And so, strategically, we are leaning into long-term and we are leaning into add more in utility and more value for long-term subscribers. And we're able to see that we're getting higher growth LTV and more value out of those customers.

Steven FrankelDougherty — Analyst

Okay. And how much are you going to spend on this off-line marketing, and maybe where are you spending? Are you hitting the Avon market, radio, and what's the strategy with these dollars?

Matthew HulettPresident, Language

Yeah, it's a great question. So, as you know, we typically focus very specifically on quick payback within a quarter, digital performance-based marketing. We haven't really flexed our muscles as the large percentage of our overall marketing budget in terms of variable marketing toward non-performance media. We're going to lean into off-line TV and digital connected TV as a, let's call it, low double-digit spend against the overall marketing, so a little bit bigger than what we did last Q2 2019 but we lean into that and test into just like we do everything else.

John HassChief Executive Officer and Chairman

And that was low double digits as a percent of the variable marketing.

Steven FrankelDougherty — Analyst

Okay. So, can you give us a ballpark of how many millions of dollars that is — I'm just trying to parse reduction in adjusted EBITDA relative to the last time you gave guidance, you were helpful with the $2 million that came out of the R&D accounting change. And so, I love to the signal of this piece (Phonetic)?

Nick GaehdePresident-Lexia Learning

Ouais. We're in the $3 million to $4 million range of incremental.

Steven FrankelDougherty — Analyst

Okay. And I guess, I'm focused on that $2 million expectation for ESL or are you just trying to set the bar really low or now that you've gotten deeper into the product, do you think that the sales process might be a little more complicated than you originally thought, and it may be takes two to three years for this product to ramp meaningfully?

John HassChief Executive Officer and Chairman

Ouais. I don't think so, Steve. It's really mostly the fact that we are launching it halfway through the year. And so, the fact that it's not commercially available until back-to-school means that we're not able to demonstrate it and provide proof of efficacy and everything else that schools typically want to see, and that — when they're adopting a program. So, we're being careful in the first year.

I do believe that we feel very confident in our ability to launch that product. The go-to-market plans are incredibly exciting, and our sales team is in place, and I think incredibly excited about the opportunity to bring that product to current customers who are using the legacy language product in that market segment but new customers as well where they haven't been able to make inroads. But as I said on the last question, the big growth will come in 2021.

Steven FrankelDougherty — Analyst

And for those schools that today are buying Rosetta Stone through the first year in the E&E group to try to do this, is there a discount for me to make that swap or a way to make that upgrade kind of easy or are you kind of going at this as this is a rip and replace because it's just a superior product and no one is going to get an easy upgrade path?

John HassChief Executive Officer and Chairman

Right, it's a much better product. It's a first product that we've built for those young EL learners, and it's the first product we built that brings together our Literacy expertise and Language expertise. So, the percentage of customers we actually had in the elementary school market because that product was never designed for that market segment, it's fairly small. So, half of the business will be renewals from the legacy product and half will be new business.

Steven FrankelDougherty — Analyst

Okay, great. Thank you. I'll jump back in the queue.

Operator

Our next question is from Ryan McDonald, Needham & Company. Please proceed with your question.

Ryan MacDonaldNeedham & Company — Analyst

Hi. Good afternoon, everyone. As we're looking at the guidance more broadly, can you handicap a little bit as you look at sort of the change last quarter to this quarter about what the mix in the guide down is between sort of lower expectations or underperformance, maybe if you want to call it that in 2019 versus concerns and impacts from COVID-19 in 2020? Thanks.

John HassChief Executive Officer and Chairman

Sure. So, part of the guide is, the investment in the brand spend that we've decided we want to lean into given the performance we're seeing in Consumer and the opportunity to develop that is very valuable asset here that will benefit all of the business. Even Rosetta Stone English and the K-12 business will benefit from that brand spend at least indirectly. Part of it is the reclass from capex to R&D. And then the guide down on the revenue side is kind of net the language business that comes out more or less flat, it's principally from Lexia. A few million dollars of that is because both slightly lower jump off point and a few million dollars of that is because we want to be more conservative. The benefit of reporting when we are, which is a little bit later, is we have more information than we would have had a week or two ago about what's going on in the world, and we felt the obligation to take that into account.

I think there are still lots of unknowns. I think we would all tend to acknowledge that. But clearly we sit here today in an environment that we're in and wanted to take that into account and are comfortable with the revised guidance based on what we know now. And then, we'll see how things develop over the course of the year with schools and everything else that we feel very good about them.

Ryan MacDonaldNeedham & Company — Analyst

Got it. And as we're looking at out and starting to look at what school budgets can be, as we get into for the fall 2020 school year. I mean, I would imagine they remained fairly consistent year-end and year-out. But is there anything that could be impacted from either one of the slowing economic growth or any sort of follow-on impact from school closures for COVID-19 that could impact school budgets going into this year?

Nick GaehdePresident-Lexia Learning

Yeah school budgets are tend to be lagging indicators of the economy, right. So I think the school budgets and the federal budgets are fairly well set for the 2020, 2021 school year. Certainly, longer term, based on the economic — the broad economic impact of the COVID-19 could drive softness in future school budgets, since they are dependent on state and local tax revenues. But we feel pretty good about the funding environment for the coming school year.

Ryan MacDonaldNeedham & Company — Analyst

Got it. And then you talked about sort of a renewals being a big aspect for 2020, and I just wanted to know, given the changes you're making into the structure of the sales force and may be making some additions, how much visibility do you have into those renewals and the chances of success there? And do the structural changes at all create an opportunity for confusion, I guess, in the near term? Thanks.

Nick GaehdePresident-Lexia Learning

Ouais. Actually, I think they create opportunity for a lot better focus. As I said before, the way we structured the channel and the capacity of the channel in 2019 meant that each individual sales rep had an enormous number of opportunities and accounts to manage, and everything from small accounts to much larger accounts. I think the segmentation of the channel now gives each team much better clarity and much better capacity to handle the volume of the business. So we've got good visibility into the renewal pool obviously, and other benefit we have now is we're bringing together data from our sales teams and data from the product, so that our customer success organization has better visibility into account health than they've had in the past, and can be more proactive in identifying accounts that are at risk, and heading that off so that those renewals are supported and managed.

Ryan MacDonaldNeedham & Company — Analyst

Got it. Merci beaucoup.

Operator

Our next question is from Eric Martinuzzi, Lake Street Capital Markets. Please, proceed with your question.

Eric MartinuzziLake Street Capital Markets — Analyst

Wanted to revisit the Q3 Literacy issues, and make sure that I understand whether or not they persisted in Q4. Because I had it boiled — in Q3, I had the Literacy booking shortfall boiled down to slow federal funding issues at many districts. And then the second issue was kind of sales execution. Can you address how those two items played out in Q4? And I just want to make sure I understand whether they are resolved, addressed or persisted and whether there is a new reason now in Q4?

Nick GaehdePresident-Lexia Learning

Ouais. No, not a new reason at all. What we saw in Q3, especially the lag in what we anticipated from Texas and from our large account strategy did persist into the fourth quarter. We — as I said before, we had a number of deals that we saw slipped from the third quarter into the fourth quarter, and unfortunately those did not materialize in the fourth quarter. But as I said before, the good news is that we see them continuing to build momentum in the pipeline, and believe that they will grow in size and materialize in Q2 and Q3. We're managing each of those larger opportunities very closely.

The other thing that, again impacted Q3 and Q4, as I said before, was just the volume of the business and the structure of our channel. The changes we've made to the channel and the additional capacity, both in our field and inside sales teams, I think addressed the issue that we saw in 2019. And that's why we feel confident going into this year.

Eric MartinuzziLake Street Capital Markets — Analyst

Going back to sales and marketing, just is that channel — if I could boil it down to a single number, I would say, oh, the issue was at the end of December 2019 or at the end of September 2019. We had the headcount for sales and marketing for K-12 was X and a year from now, September 2020, it's going to be, why? Could you — have you sized that up based on this investment you've talked about?

Nick GaehdePresident-Lexia Learning

Ouais. You see the numbers of sales reps in the presentation. So you can see the size of the account executive team, and the account management team and the management infrastructure shift so, and grow, right. So two new inside sales managers, and new account executives, and account managers on the inside sales side. The other thing we have done is, we've doubled the size of our sales associate team, that's the team that really is sitting here in the Concord office, helping our sales reps with quotes, helping them manage the small transactional renewals, and giving our — yeah?

Eric MartinuzziLake Street Capital Markets — Analyst

At least say the number in the slide deck. Are you talking about Slide 11?

Nick GaehdePresident-Lexia Learning

I am talking about, let me just get there, that's correct. Ouais.

Eric MartinuzziLake Street Capital Markets — Analyst

Let's do the math for me, 2019 one number, 2020 one number.

Nick GaehdePresident-Lexia Learning

So I just want to check with Tom, and make sure that we're comfortable in sharing exact numbers on the sales side.

Eric MartinuzziLake Street Capital Markets — Analyst

Sure.

Thomas PiernoChief Financial Officer

Yeah, I think it's fine Nick.

Nick GaehdePresident-Lexia Learning

Okay. So again, from a sales management standpoint, we have five regional sales managers, managing those account executives and account managers. So when you see the account executives and account managers of seven per region and three per region in 2019, and five regions that math is pretty straightforward. In 2020, again, we reduced the span of control for our regional sales managers. So they're just now managing seven people instead of 10 previously, and brought in two region inside sales managers with eight account managers underneath them each.

Eric MartinuzziLake Street Capital Markets — Analyst

Okay. I'm getting the brain cramp here, but I'll take it offline. I think you've given me, but I can get to the number. So let's talk about the pricing. You talked about that part of the issue in K-12 was price increases that didn't go through. In other words, you've got an installed base customer (Technical Issues) you're coming at them with a price increase and they're saying, you know what, I'll take less of this cheaper product over here. What's — what do we need to fix about the pricing packaging going forward?

Nick GaehdePresident-Lexia Learning

So first of all, if you look — take a look at 2020, and our long-term plan. There are no additional price increases baked into that plan. It's not to say that there isn't potential future opportunity. But it is not in the financials. So the — and we did not increase prices across the board. They were very targeted price increases. We increased the price of our Unlimited site license from $8,500 to $9,000. And we increased the price of one of our service bundles, the one that had a large percentage of face-to-face delivery. And so what we saw was customer saying, you know what that that price increase, especially on the service package is more than I want to take on this year. And they purchased a virtual implementation package instead, which had the same price point as that face-to-face price package before. What that did was, put some pressure on bookings because we had modeled that that price increase would have a larger impact, but it did drive better margins because the margin on that virtual service package is better.

Eric MartinuzziLake Street Capital Markets — Analyst

Okay. And then I want to revisit the 2020 outlook. And if I look back to the guidance back in November, we had a — the revenue outlook, I want to say $196 million or so is the midpoint. Now, we're at $193 million at the midpoint. That $3 million downward revision. I think I've got it. We had a little bit less than we expected in the 2019 bookings on the Literacy side. But everything else was kind of on track or slightly better. So that to me, explains the revenue midpoint reset. The $6 million delta on the adjusted EBITDA, we talked about $2 million from the R&D capitalized versus expense, and then we talked about $3 million to $4 million of incremental spend on the marketing side. Those three things you would all be to the negative, so I would almost think adjusted EBITDA would be lower. Is there an offset on the expense side that keeps — because the adjusted EBITDA midpoint was $10 million and now it's $4 million, so I was looking for kind of when everything was netted out, there would be a $6 million pressure to the EBITDA?

John HassChief Executive Officer and Chairman

Ouais. What I mentioned in the script was reduced expenses elsewhere. We've cut expenses in other parts of the business to partially fund the investments and make up for that decrease.

Eric MartinuzziLake Street Capital Markets — Analyst

Got you. Okay, that covers my questions. Thank you. And congrats on the PowerUp that has a strong rating, that's a terrific endorsement for your product.

John HassChief Executive Officer and Chairman

Thank you. Nice to have grown as much as we have without it. Now that we have it, it's terrific.

Operator

Our next question is from Hannah Rudoff, D.A. Davidson. Please proceed with your question.

Hannah RudoffD.A. Davidson — Analyst

Hi, guys. Thanks for taking the questions today. I'm kind of following on the previous question about renewal rates. Could you talk about where you expect retention rates to trend going forward over the course of this coming year?

John HassChief Executive Officer and Chairman

Nick, would you like to take that?

Nick GaehdePresident-Lexia Learning

Sure. So, as you saw on the presentation, renewal — retention rates (Phonetic) did tick down a bit, and that was really because of two primary factors that we talked about, one was the end of grandfather pricing, and that grandfather pricing was put in place when we moved from perpetual to subscription pricing. The impact of that was mostly felt in 2019. The bulk of that grandfather pricing now behind us, there still is some pull forward, but we've factored that into our modeling now much more clearly from the segmentation standpoint. So looking at the various customer segments, understanding how they renewed in 2019 and then modeling that going forward.

We'll still see some churn in those smaller accounts in 2019, remember retention rates are unit based, but we expect it's a stabilized, we expect renewal rates to continue to improve as we sell multiple products into a singular account.

Hannah RudoffD.A. Davidson — Analyst

Génial. That's really helpful. And then, can you talk about the competitive environment, particularly how that relates to Rosetta Stone English, so for new business you're winning with that product, who are you displacing, if anyone?

John HassChief Executive Officer and Chairman

Right. So, again, Rosetta Stone English launches this summer. Most of the competitors in that space are print-based competitors, products that really aren't doing a great job of driving student performance. There are a few competitors with digital solutions that support both EL students and sort of the general student population, but none of them have the capability that we've built because of the expertise we have as a language learning company, right.

When you think about what those students need, they need the opportunity to practice their oral language skills in class. And they don't have that opportunity now. There just aren't products that are voice-enabled that gives students the ability privately to practice their speech. And it's probably the thing that holds most students back. And so, it's a very unique product and one we are incredibly excited about, especially given the early feedback we're seeing from our beta sites.

Hannah RudoffD.A. Davidson — Analyst

Génial. That makes a lot of sense. Thanks, guys.

Operator

Our next question is from Noah Steinberg, G2 Investment Partners. Please proceed with your question.

Josh GoldbergG2 Investment Partners — Analyst

Hey, Iohn. It's Josh Goldberg, how are you?

John HassChief Executive Officer and Chairman

Good, Josh. How are you?

Josh GoldbergG2 Investment Partners — Analyst

So, I had a couple of questions. I guess I'll start with — obviously everyone is wondering how this is affecting all other businesses. I just want to know what can you do to increase your competitive moat because of this? What are you doing internally to use this dislocation or distance learning opportunity to your advantage? And then I have a follow-up.

John HassChief Executive Officer and Chairman

Ouais. And I'll start and let Nick and Matt address that actually because I think it's relevant to both parts of the business. One thing I would mention is that a few people had asked about it prior to the call. We've included in the supplemental financial information that we posted to the IR website as the last couple of pages, and email that Lexia sent out to its customers, I think, earlier this week end of last week that talks about what we can do to support our K-12 customers in the event of the school closure, I think it's terrific, I think it will give you a real sense of the quality of the offering and the quality of the support, and I highly recommend that everybody look at that. And if you have any trouble finding it, let us know and we'd be happy to email you a PDF of that.

With that, Nick, I'd let you maybe add some thoughts.

Nick GaehdePresident-Lexia Learning

Sure. So, I think, as John mentioned, our first focus is on making sure that our customers who already have our product know how to use it to support remote learners and teachers who won't be in schools. And so, we are doing everything we can to make sure that they have the tools and the knowledge to leverage what they already have. Our belief is that we can be — we know we can be a really important part of how schools plan to manage those virtual student populations now. So, first thing we're doing is making sure we're supporting our customers.

We're also thinking about ways in which we can support both customers and non-customers over the next two or three months to make it as they are planning right now, and we're hearing this daily. They are planning their contingency plans in case students close to make sure that they are aware of our products or where or how they can fill the need as they're putting together their instruction and curriculum plans for a student if and when schools close. So, we're — from the standpoint of our products, being able to benefit those schools, we're trying to make sure we're in the hands of as many of those schools where a closing is possible. Long-term, I think this is an opportunity for educational technology and distance learning to play a bigger role in schools. In the short-term, as John mentioned, we do believe there will be a little bit of pressure on new business but also believe that there is opportunity for stronger renewals and expansion that schools are struggling to figure this out.

Josh GoldbergG2 Investment Partners — Analyst

Matt, is there anything you'd like to add on the language side?

Matthew HulettPresident, Language

Ouais. And I have an interesting perspective on this. And first, I'd like to say, of course, we want to take care of our learners and we are concerned about all of our global citizen. We wouldn't want to use this pandemic and global downturn for business purposes only. We really think about all of our learners and concerned about them. I have been involved in a leadership position across two different recessions and actually was a President of a travel company during 9/11, and you mentioned the economic moat. One thing that we do feel that is time to lean into is the economic moat around the brand. Our biggest competitor in the language business is that most of our customers don't know that we have a digital product, they still think of us as a CD company. And we see the time with the right product market sets, the right execution that we've been able to show in Q4 that this is the time to start leaning in to the brand, and we're excited to do that.

Josh GoldbergG2 Investment Partners — Analyst

Okay. And John, if it's OK, we've been involved in the company for a while. We like what you guys have done, and the stock has not responded even before the last few weeks. And I think some of the concerns from investors have been really centered around this. The guidance continues to go lower. And specifically on the booking side, I think you have heard that from a few investors today and you've given really no clarity on what the bookings guidance will be on the Lexia said in 2020.

I think at one of your analyst days, you talked about a 20% to 25% growth rate. You weren't able to do that last year. It doesn't sound even with all the increase of quota-carrying reps that you feel confident on the '20 even with New York and Texas and a more mature state. So, can you talk a little bit about really what's going on in that area? I mean, we understand all the other issues, so just in that area why are you not seeing this sort of exit velocity — escape velocity to be able to grow even faster as more and more schools line up? Thank you.

John HassChief Executive Officer and Chairman

Ouais. No, thank you for the question. So, just for sake of clarity, we did guide to 20% to 25% bookings growth in the Literacy segment this year. That is down from our guidance in November, which was 25% to 30%. That is based on a belief that this could be a more difficult new business environment this year, not as Nick said because of budget, but frankly because of distraction. We don't know that yet. We haven't yet seen that. Schools weren't close the vast majority of their business until we move into the third and fourth quarter, but this is the time in which we're out talking to new customers those engagements and relationships we made ongoing, but we are concerned about the unknown. And so, we took that guidance down from 25% to 30% or midpoint of 27.5% down to a midpoint of 22.5% for this year.

There remain unknowns of course, I don't think any of us even know if there is going to be an Olympic this year, but what we're confident of is PowerUp is going very strongly. This is our third year of selling that product and we finally have the efficacy demonstrated to stand behind it that takes time, we now have that.

We feel very good about Texas. Again, that's somewhat related to PowerUp, and I know this sounds like a broken record. But the secondary school Literacy adoption in Texas takes place this year. We think PowerUp is a great fit there, and it's a Literacy adoption. They have to do it. Distraction will not be an excuse in Texas even with the virus. They have to get their secondary school literacy adoption in place.

And then, obviously we've taken very significant steps in restructuring and expanding the sales team. We believe we have the best products in the market. We believe we have the best K-5 literacy products. We believe we now have — and the third-party has said we do the best 6-12 Literacy products. We are about to introduce what we think will be the best EL product for K-6. That's a really powerful portfolio and it's going to, it's that portfolio with our right execution that will allow us to, I think, a reasonable growth rate for this business.

I think escape velocity for this business is 20% to 25% on a consistent basis for the next few years. And the, we're comfortable guiding to that based on the investment that we've made in the products that we think we've built — we know we've built.

Josh GoldbergG2 Investment Partners — Analyst

I guess, I'm back to more so what is it that's not helping you kind of accelerate or get more conviction on your growth rate like usually in the year two or three of an adoption phase you start getting better clarity it seems like you're not seeing that yet and I'm just…

John HassChief Executive Officer and Chairman

No. Again, I would say, like we had guided to 25% to 30% growth back in November, and then low and behold we're sitting here in the middle of March and schools are closing, we don't know what that means. Again, just — for focus, we know our products are well accepted, we know they deliver terrific outcomes. Our confidence in our products, our confidence in our ability to execute with the restructuring of the sales team, none of that has shaken.

The only thing that has created uncertainty right now is our school's principals going to be distracted. Now that could very good help the renewal business. They will, may stick with us, they may expend with us. The little bit of uncertainty is just on the new business side which will be temporary, right it could be just four a few months as we come through this we just don't know.

Our confidence in the business has frankly never been higher. It have gone from a one product company, which is always a little scary, and I think most of you know going from a one product company to having two successful flash products is not easy, not a lot of people do that. I think we've done that now with Core5 and PowerUp and we're highly confident we're about to do that again with Rosetta Stone English. We wish the environment was a little better and when it is and when schools are all open and people are just worried about learning.

I think schools will feel good about the business and because we are going to your first question, because everyone here is first and foremost is focused on supporting their customers. We are going to come out of this with better relationships than we had going in. We're going to come out of this with a better reputation than we had going in and it's pretty good.

And our team is, we're actually dedicated to our team, and our team is dedicated to those customers. And when we come through it, we will be in very good shape, so we got to get to the other end of this uncertainty before we can start talking about higher than 20% to 25% growth rate.

Josh GoldbergG2 Investment Partners — Analyst

Okay. Thank you.

Operator

We have reached the end of the question-and-answer session. I will now pass the call back over to management for closing comments.

John HassChief Executive Officer and Chairman

Thank you. We are truly excited about this year. Obviously this is a very difficult year for many people, much more so for many, many people than for us. Our focus is our team as I said and it's our customers.

We look forward to speaking to you in the future as I said in my prepared remarks. We want to stay in touch during all of this uncertainty so that we're close with you and you understand what is going on in the business, and we look forward to doing that. Thank you for your questions and we hope you are all well.

Operator

(Operator Closing Remarks)

Duration: 78 minutes

Call participants:

Jason TerryVice President

John HassChief Executive Officer and Chairman

Nick GaehdePresident-Lexia Learning

Matthew HulettPresident, Language

Thomas PiernoChief Financial Officer

Alex ParisBarrington Research — Analyst

Steven FrankelDougherty — Analyst

Ryan MacDonaldNeedham & Company — Analyst

Eric MartinuzziLake Street Capital Markets — Analyst

Hannah RudoffD.A. Davidson — Analyst

Josh GoldbergG2 Investment Partners — Analyst

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